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This change has no implications for the amount of tax due, who pays it or when. It affects (in principle and in practice) only administrative matters.
Change 142: Deduction of tax: meaning of "qualifying certificate of deposit" and "qualifying uncertificated eligible debt security unit": clauses 919 and 920
This change aligns the terms of the repayment condition in the definitions of "qualifying certificate of deposit" and "qualifying uncertificated eligible debt security unit" with the terms of the repayment condition in the definition of "qualifying time deposit".
Under the source legislation (sections 349(4) and 482(6) of ICTA), the issuer of any of these two instruments must pay an amount of not less than £50,000 (or equivalent if in a foreign currency) "after a period of not more than five years beginning with the date on which the deposit is made".
The source legislation is not clear about whether this means that the amount must be repaid in one tranche at a specified time. But in practice, whenever these instruments are issued, they are issued on the basis that the amount is payable in one tranche at a specified time within five years of the date of the deposit being made, in line with the position for qualifying time deposits.
This change has no implications for the amount of tax paid, who pays it or when. It affects (in principle but not in practice) only administrative matters.
Change 143: Interpretation: definition of "personal representatives" for the purposes of the Income Tax Acts: clause 923
This change applies the new defined term, "personal representatives" for the purposes of the Income Tax Acts. It completes the process started by ITEPA as a result of which definitions to the same effect were applied:
The application of the defined term to ITEPA and ITTOIA is described in Change 159 in Annex 1 to the Explanatory Notes to ITEPA and in Change 151 in Annex 1 to the Explanatory Notes to ITTOIA. This note draws heavily on the contents of those notes.
With the exception of sections 111 and 151 of FA 1989, wherever the term "personal representatives" is used in the Income Tax Acts, other than ITEPA, Part 4 of FA 2004 and ITTOIA, the term is undefined.
Places where it is so used include the following provisions on which this Bill is based:
Section 111 of FA 1989 (residence of personal representatives) has its own definition of "personal representatives". Section 111(1) and (2) of FA 1989 have been rewritten in clause 767.
The definition in section 111(3) of FA 1989, which is also applied for the purposes of section 151 (assessment of trustees etc) of that Act by subsection (3) of that section, provides that:
In this section "personal representatives" means
(a) in relation to England and Wales, the deceased person's personal representatives as defined by section 55 of the Administration of Estates Act 1925;
(b) in relation to Scotland, his executor or the judicial factor on his estate;
(c) in relation to Northern Ireland, his personal representatives as defined by section 45(1) of the Administration of Estates Act (Northern Ireland) 1955; and
(d) in relation to another country or territory, the persons having in relation to him under its law any functions corresponding to the functions for administration purposes of personal representatives under the law of England and Wales.
Section 55(1)(xi) of the Administration of Estates Act 1925 provides that:
"personal representative" means the executor, original or by representation, or administrator for the time being of a deceased person, and as regards any liability for the payment of death duties includes any person who takes possession of or intermeddles with the property of a deceased person without the authority of the personal representatives or the court, and "executor" includes a person deemed to be appointed executor as respects settled land.
Section 45(1) of the Administration of Estates Act (Northern Ireland) 1955 provides that:
"personal representatives" means the executors or executor, original or by representation, or the administrators or administrator for the time being of a deceased person.
The definitions in section 55 of the Administration of Estates Act 1925 and section 45(1) of the Administration of Estates Act (Northern Ireland) 1955 refer to executors as well as administrators.
Under English law, executors are generally appointed by the will. Administrators are appointed by the court where no one is appointed as executor by the will or where the deceased dies without leaving a valid will.
English law recognises three other categories of executor. The first is "executor according to the tenor" who on the terms of the will is appointed to perform the essential duties of an executor where the deceased person has failed to nominate a person to be his executor. Secondly there is the "executor de son tort", who is a person who takes upon himself the position of executor or intermeddles with the goods of the deceased person without having been appointed executor or administrator. Thirdly there is the "special executor", the term given to a person who is a trustee of settled land at the time of the death. The position is similar for Northern Ireland.
For the purposes of Scottish law, an executor is appointed either expressly or impliedly by the deceased, in which case he is known as an executor nominate, or by the court, in which case he is known as an executor dative. So the term "executor" under Scottish law is broadly equivalent to an "executor or administrator" under English law. Scottish law also recognises judicial factors and executor-creditors who may be appointed by the court to administer the deceased's estate or part of it. Although a judicial factor could not be described as an executor, such a factor might be regarded as an "administrator".
So, in relation to any part of the United Kingdom, a deceased person's personal representatives within the meaning of section 111(3) of FA 1989 are the persons responsible for administering the person's estate.
Accordingly, the first limb of the definition in clause 923, that personal representatives are:
in the United Kingdom, persons responsible for administering the estate of the deceased,
catches the same persons as does section 111(3) of FA 1989 in relation to each part of the United Kingdom, but does so more directly and succinctly.
It follows from what is said above, that the application of the first limb of the definition in clause 923 in relation to the provisions in the Income Tax Acts which use the expression "personal representatives" without definition, including those rewritten in this Act, reflects the ordinary common sense meaning of those terms in each part of the United Kingdom.
The second limb of the definition in clause 923 is in similar terms to section 111(3)(d) of FA 1989. It provides that personal representatives are:
in a territory outside the United Kingdom, those persons having functions under its law equivalent to those of administering the estate of the deceased.
Section 111(3) of FA 1989 has, accordingly, not been rewritten and the definition in clause 923 applies for the purposes of clause 767 of this Bill and section 151 of FA 1989.
That leaves the question of whether there is any change involved in applying the second limb to provisions in the Income Tax Acts which use the expressions "personal representatives" without definition, as those provisions apply to countries and territories outside the United Kingdom.
The terms "executor" and "administrator" are not terms of art in relation to countries and territories outside the United Kingdom. But it seems likely that a court would hold that references to "personal representatives" in tax legislation would, in the absence of a definition, cover the people that most closely resemble executors or administrators in the United Kingdom. In view of what is said above, that means the people who have functions corresponding to those of personal representatives in the United Kingdom ie functions equivalent to those of administering the estate of the deceased.
References to "personal representatives" without definition in the Income Tax Acts, including in those provisions on which this Bill is based, can be read as references to anyone with responsibility for administering a deceased person's estate, including those with equivalent responsibilities in other jurisdictions. These provisions can be divided into two categories.
In the first category are provisions which confirm that, on an individual's death, rights and liabilities which are or would otherwise have been conferred on the individual are conferred on the individual's personal representatives.
In this context it is clear that the references to "personal representatives" are to whoever in fact has the role of administering the property of the deceased person. These provisions are intended to confirm that such persons have the same ability and responsibility to deal with the deceased individual's tax affairs as the individual would have had if the individual were still alive, and are subject to the same tax liabilities.
Provisions in this category rewritten in this Bill include sections 703(11) and 777(7) of ICTA. Such provisions which are not being rewritten include section 97(1) of TMA which provides that, if it comes to the notice of the personal representatives that the deceased made an incorrect return etc, they are under a duty to remedy the error without unreasonable delay.
The second category covers those provisions which apply only because a person has died, so that his or her property is being administered by his or her personal representatives.
In this category of cases, the fact that someone has died creates a gap in the law (or at least a doubt as to what the law is) or requires some special arrangement to be made. The provisions in question fill the gap or satisfy the requirement. So it is consistent with the aim of these provisions for them to be interpreted as applying in all cases in which a person has died and his property is being administered by others.
Provisions in this category rewritten in this Bill include:
Provisions in this category which are not being rewritten include section 179A(3) of FA 1993 which provides that the carrying on of the underwriting business of a deceased member of Lloyd's by the deceased member's personal representatives is not to be treated as a change in the persons engaged in carrying on that business.
As a consequence of the inclusion of this definition in clause 923, the definitions to the same effect in section 721(1) of ITEPA, section 279(1) of FA 2004 and section 878(1) of ITTOIA are no longer necessary and are repealed by Schedule 3. Sections 111(3) and 151(3) of FA 1989 are also repealed.
This change has no implications for the amount of tax paid, who pays it or when.
Change 144: Interpretation: adopted children: clause 923 and Schedule 1 (section 832 of ICTA)
This change omits section 832(5) of ICTA, so that the general law will apply, with the result that adopted children will be treated as if they were born as the children of their adopters.
The general law is set out in the Adoption and Children Act 2002 (as regards England and Wales), the Adoption (Scotland) Act 1978 (as regards Scotland) and the Adoption (Northern Ireland) Order 1987 (as regards Northern Ireland).
Section 67 of the Adoption and Children Act 2002 provides that "an adopted person is to the treated in law as if born as the child of the adopters or adopter" and that this applies for the interpretation of enactments passed before or since the adoption, subject to any contrary indication. Similar provision is made in the Scottish and Northern Irish legislation referred to above.
It is possible that this change might very slightly alter the scope of those adoptions which are covered. For example, under the general law some overseas adoptions are only covered if they are covered by an order made by the Secretary of State. (See sections 66(1)(d) and 87(1) of the Adoption and Children Act 2002). Depending on the tax provision in question, this could in principle be either taxpayer-adverse or taxpayer-favourable. But it will make no difference in practice.
The reference in section 832(5) of ICTA to paragraph 10 of Schedule 30 to ICTA 1988 is now otiose as that paragraph has been repealed.
Given the nature of the case, the change is extended to corporation tax, by repealing section 832(5) of ICTA.
This change is in principle adverse to some taxpayers and favourable to others. But it is expected to have no practical effect as it is in line with current practice.
Change 145: Interpretation: references to Scottish and Northern Ireland legislation: clauses 66, 114, 532, 536, 558, 735, 924 and 952
This change is about the extent to which references to "Act" are to be interpreted as including references to Scottish and Northern Irish primary legislation.
Clause 924(1) defines "Act" to include Northern Ireland legislation for the purposes of the Income Tax Acts (unless the context otherwise requires: see clause 922(1)). "Northern Ireland legislation" is defined in section 24(5) of the Interpretation Act 1978 (the 1978 Act) and applies by virtue of Schedule 1 to the 1978 Act. It is the term commonly used in legislation when referring to Northern Irish primary legislation. The definition of "Northern Ireland legislation" has seven limbs, (a) to (g).
Section 832(1) of ICTA defines "Act" to include Acts of the Parliament of Northern Ireland and a Measure of the Northern Ireland Assembly. So it expressly covers limbs (b) and (d) of the definition of "Northern Ireland legislation" in the 1978 Act. And, as a consequence of various deeming provisions contained in Schedule 12 to the Northern Ireland Act 1998, it also covers limbs (c), (e) and (f) of the definition of "Northern Ireland legislation". Only limbs (a) and (g) of the definition of "Northern Ireland legislation" are not covered.
To simplify the definition of "Act" the current wording in section 832(1) of ICTA is replaced with a simple reference to "Northern Ireland legislation". The change in law is that limbs (a) and (g) of the definition of "Northern Ireland legislation" will now be covered. This will not have any practical consequences.
Cause 952(1) provides that in certain clauses of this Bill "Act" is to include Acts of the Scottish Parliament. "Act" on its own does not include Acts of the Scottish Parliament (see the definition of "Act" in Schedule 1 to the 1978 Act) and the definition of "Act" in clause 924 does not extend its meaning to include Acts of the Scottish Parliament.
But it is appropriate that references to "Act" in clauses 66, 532, 536 and 558 should include references to Acts of the Scottish Parliament. In each of these cases the extension of the meaning of "Act" can only be advantageous to taxpayers. A similar provision is contained in section 879 of ITTOIA.
Clause 952(2) overrides the definition of "Act" in clause 924 for the purposes of this Bill. This is to make it easier to identify the clauses where Northern Ireland legislation is relevant and where it is not, and follows the approach taken in section 880 of ITTOIA. The references to clauses 66, 114, 532, 536, 558 and 735 either reflect the current law or, if they change the current law, can only be advantageous to taxpayers.
Examples of where "Act" does not include Northern Ireland legislation are to be found in clauses 4(1), 459(1) and 782(2).
This change is in taxpayers' favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small.
Change 146: Tax calculation: highest part of income: priority between items specified in section 833(3) of ICTA: clause 946
This change introduces an order of priority between employment termination payments and gains from life assurance contracts in treating such amounts as the highest part of income.
There are a number of provisions in the Income Tax Acts which specify that items are to be treated as the highest part of income. They are subject to the rule in section 833(3) of ICTA which says that employment termination payments within Chapter 3 of Part 6 of ITEPA and gains from life assurance contracts within section 465 of ITTOIA outrank income under all other such provisions and form the topmost slice of income. But section 833(3) of ICTA gives no order of priority between those two types of income.
In practice, because life assurance gains carry a notional tax credit that might otherwise be lost, it will always be to the taxpayer's advantage to treat such gains as the highest slice. Accordingly, in rewriting section 833(3) of ICTA in clause 946 it has been made clear that, that life assurance gains outrank termination payments. See also new section 404A of ITEPA and new section 465A of ITTOIA inserted by Schedule 1 to this Bill.
This change is in taxpayers' favour in principle. But it is expected to have no practical effect as it is in line with current practice.
Change 147: Charges on income etc: calculation of modified net income: clause 958
This change specifies that certain adjustments are to be made to the amount of a person's net income in measuring income for particular purposes. The amount after these adjustments is the person's "modified net income".
The concept applies mainly to the deduction allowed for annual payments and patent royalties under Chapter 4 of Part 8 (see clauses 448(4) and 449(5)).
But it also applies to:
The link between the purposes concerned is that the issue in each case is whether there is sufficient income for a payment to be regarded (under the source legislation) as having been paid "out of" the income of the year.
In determining the amount of a person's net income for a tax year under clause 23 (which rewrites the relevant parts of section 835 of ICTA), it is necessary to:
But it is not appropriate for all claims that have their origins in a different year to be taken into account in measuring income of the year concerned. That is because the source legislation is concerned with establishing whether, in fact, the taxpayer had sufficient taxable income "out of" which the payment could have been made.
In these cases, this change provides that certain adjustments that have their origins in a different year are disregarded in calculating the income of the year concerned.
The change does not apply to reliefs that are carried forward from an earlier year - it is well established that these do reduce the pot of income "out of" which payments can be regarded as having being made. But the position in relation to a claim or adjustment that has its origin in a later year is not explicit.
The new rule in the calculation of charged income for the purposes of relief for charges and gift aid is to disregard all adjustments (whether an increase or a decrease) that have their origins in a later year and to which Schedule 1B to TMA applies.
These adjustments are:
This change is in principle and in practice adverse to some taxpayers and favourable to others. But the numbers affected and the amounts involved are likely to be small.
Change 148: Double relief for interest payments: repeal of section 368 of ICTA in relation to relief remaining under section 353 of ICTA: Schedule 1 (section 368 of ICTA)
This change relates to the repeal of section 368 of ICTA which prevents interest qualifying for relief twice.
Section 368 of ICTA prevents relief being given for the same amount of interest more than once, for example under section 353 of ICTA and as a trading deduction. The rule in section 368 has been rewritten in clause 387. But that provision only applies to relief under Chapter 1 of Part 8 of this Bill and will not apply to relief under section 353 of ICTA by virtue of section 365 of ICTA. As that relief is obsolescent, it has been left in ICTA, rather than being rewritten in the Bill. It relates to interest on loans taken out to purchase a life annuity and is given as a tax reduction.
As the rule in section 368 of ICTA is repealed without being rewritten in relation to section 365, there could be theoretical possibility for relief on the same interest under section 353 (life annuity loans) of ICTA and either under clause 383 of this Bill or as a trading deduction.
In practice, however, it is extremely unlikely that the circumstances which might allow double relief will exist. The loan would have to be taken out before 9 March 1999 by an individual aged over 65 with at least 90% of the loan proceeds being applied to purchase the annuity and the remaining portion applied on another qualifying purpose. It is then possible for interest on that remaining portion (a maximum of 10% of the loan) to give rise to both a tax reduction and an allowable deduction.
In view of the fact that this possibility is so remote, no special rule to prevent double relief has been introduced on the repeal of section 368 of ICTA.
This change is in taxpayers' favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small.
Change 149: Deduction of tax: visiting performers: Schedule 1 (section 556 of ICTA and section 13 of ITTOIA)
This change makes it explicit that, when a payment or transfer of the type referred to in section 555 of ICTA is made, section 556 of ICTA and section 13 of ITTOIA will apply regardless of whether there is a duty to deduct tax at source under section 555. This gives statutory effect to the majority decision of the House of Lords in Agassi v Robinson 4 [2006 UKHL 23].
4  STC 1056
In that case, the House of Lords held that a visiting performer is liable to income tax on payments made in respect of a UK performance regardless of whether the payment is made directly to the performer or to a person connected with the performer. They held that the liability to income tax on a visiting performer under section 18(1)(a)(iii) of ICTA is not determined by whether there is a duty to deduct income tax from the payment. So the operation of section 556 of ICTA does not depend on the payer having an obligation to deduct tax at source under section 555 of ICTA.
As Lord Scott said at paragraph 17(2) of the judgment:
In order to know whether for section 556(5) purposes the payment is one to which section 555(2) applies, two, and in my opinion only two, questions need to be asked. First, has a payment been made (to whatever person), not being a payment "of such a kind as [has been] prescribed" (section 555(6))? If the answer is "yes", then, second, has the payment "a connection of a prescribed kind with the relevant activity"? If the answer to this question, too, is "yes" then, in my opinion, for section 556(5) purposes, the payment is one to which section 555(2) applies. The identity of the payer is, in my opinion, as a matter of construction of section 555(2), irrelevant to the question.
The amendments to section 556 of ICTA make it explicit that, when a payment or transfer of the type referred to in section 555 of ICTA is made, no liability to corporation tax will arise. This is regardless of whether there is a duty to deduct under clause 899 of this Bill.
The amendments to section 13 of ITTOIA make it explicit that when a payment or transfer of the type referred to in section 555 of ICTA is made, it is not necessary for there to be a duty to deduct under clause 899 of this Bill in order for the performer to be liable to income tax on the payment or transfer under Chapter 2 of Part 2 of ITTOIA (income taxed as trade profits).
As part of this amendment, section 555(5) of ICTA has been incorporated into section 13 of ITTOIA to make clear that there is no link between the primary liability to income tax under Chapter 2 of Part 2 of ITTOIA (income taxed as trade profits) and the duty to deduct tax under clause 899 of this Bill.
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